Post Acute Medical at Hammond, Llc v. Burwell

MOTION for Summary Judgment

D.D.C.April 7, 2017

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA POST ACUTE MEDICAL AT HAMMOND, LLC d/b/a Post Acute Specialty Hospital of Hammond 42074 Veterans Avenue Hammond, LA 70403, Plaintiff, v. THOMAS E. PRICE, Secretary U.S. Department of Health and Human Services 200 Independence Avenue, S.W. Washington, DC 20201, Defendant. Civil Action No. 16-1257 (JDB) PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT Plaintiff Post Acute Medical at Hammond, LLC d/b/a Post Acute Specialty Hospital of Hammond, pursuant to Federal Rule of Civil Procedure 56, respectfully moves for summary judgment in its favor on the grounds that there are no material facts in dispute and that Plaintiff is entitled to judgment as a matter of law. The Centers for Medicare and Medicaid Services (“CMS,” represented here by the Secretary of the Department of Health and Human Services) issued a Final Rule that determined the calculation of Medicare reimbursement for long-term care hospitals (“LTCHs”), including the Plaintiff, during fiscal year (“FY”) 2016. Part of the payment calculation is based on labor costs in the geographic region where the hospital is located. This “labor-related share” of the standard Medicare payment is adjusted to account for geographic differences in area wage levels by applying the applicable wage index amount. The FY 2016 Final Rule drastically reduced the wage index amount for the geographic region where Plaintiff is located. CMS had recently revised this geographic region so that it included only one other hospital. CMS was aware that regions with only a few hospitals could experience wide variation in their assigned wage index amount year-to-year. However, CMS did Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 1 of 52 2 not discuss this in its Proposed Rule or otherwise provide sufficient notice of the issue to allow for meaningful comment by Plaintiff and other affected hospitals. Had CMS provided sufficient notice in the Proposed Rule, Plaintiff would have submitted comments and suggested policies to address this issue. In the Final Rule, CMS did not apply any difference in policy to Plaintiff’s geographic region, despite creating special policies to reduce wage index variability for hospitals in similar situations. These substantive and procedural errors by Defendant violated both the Administrative Procedure Act (“APA”) and the Medicare Act. CMS did not comply with the notice and comment rulemaking requirements of the APA and the Medicare Act. CMS also failed to consider an important aspect of the problem. In addition, CMS failed to provide sufficient reasons for treating similar situations differently. Therefore, the FY 2016 LTCH wage index was not established in the manner required by the APA and the Medicare Act. The Defendant’s improper adoption of the LTCH wage index for FY 2016 harmed the Plaintiff by decreasing the Plaintiff’s Medicare reimbursement for inpatient services rendered by Plaintiff in FY 2016 by approximately $1,046,874. For the reasons set forth in the accompanying Memorandum of Points and Authorities, which is hereby incorporated by reference, the wage index under the FY 2016 Final Rule is invalid as a matter of law. The Court should order the Secretary to use the previous year (FY 2015) wage index to reimburse all of Plaintiff’s FY 2016 Medicare claims until the Secretary effectuates a policy, after reasoned analysis and notice and comment, to avoid or significantly reduce the negative impact of the reduction to Plaintiff’s FY 2016 wage index amount, and reduce year-to-year variability in Plaintiff’s wage index amount in the future. Dated: April 7, 2017 Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 2 of 52 3 Respectfully submitted, /s/ Jason M. Healy Jason M. Healy (D.C. Bar No. 468569) THE LAW OFFICES OF JASON M. HEALY PLLC 1701 Pennsylvania Ave., N.W. Suite 300 Washington, DC 20006 (202) 706-7926 (888) 503-1585 (fax) jhealy@healylawdc.com Attorney for Plaintiff Post Acute Medical at Hammond, LLC d/b/a Post Acute Specialty Hospital of Hammond Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 3 of 52 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA POST ACUTE MEDICAL AT HAMMOND, LLC d/b/a Post Acute Specialty Hospital of Hammond 42074 Veterans Avenue Hammond, LA 70403, Plaintiff, v. THOMAS E. PRICE, Secretary U.S. Department of Health and Human Services 200 Independence Avenue, S.W. Washington, DC 20201, Defendant. Civil Action No. 16-1257 (JDB) PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF THE MOTION FOR SUMMARY JUDGMENT Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 4 of 52 i TABLE OF CONTENTS I. INTRODUCTION ...............................................................................................................1 II. STATUTORY AND REGULATORY BACKGROUND ...................................................2 A. The Medicare Program ............................................................................................2 B. The Long-Term Care Hospital Prospective Payment System (LTCH PPS) ............2 C. LTCH PPS Wage Index ...........................................................................................4 D. Rulemaking Requirements Under the Administrative Procedure Act .....................7 E. Rulemaking Requirements Under the Medicare Act ...............................................8 III. STATEMENT OF MATERIAL FACTS ON THE ADMINISTRATIVE RECORD .............................................................................................................................9 IV. PROCEDURAL HISTORY...............................................................................................13 V. STANDARD OF REVIEW ...............................................................................................15 A. Summary Judgment Standard ................................................................................15 B. Administrative Procedure Act Standard ................................................................16 VI. ARGUMENT .....................................................................................................................18 A. CMS Did Not Provide Sufficient Notice to Allow for Meaningful Comment on the FY 2016 LTCH PPS Wage Index in Violation of APA § 553..........................................................................................................................18 B. CMS Did Not Provide Sufficient Notice to Allow for Meaningful Comment on the FY 2016 LTCH PPS Wage Index in Violation of Medicare Act § 1871 ..............................................................................................28 C. The FY 2016 LTCH PPS Wage Index Is Arbitrary and Capricious Under APA § 706 Because CMS Did Not Take a Hard Look at, or Adopt Policies to Reduce, Year-to-Year Variability of the Wage Index Amount for LTCHs in Revised CBSAs with Few Hospitals ....................................................32 D. The FY 2016 LTCH PPS Wage Index Is Arbitrary and Capricious Under APA § 706 Because CMS Failed to Provide Sufficient Reasons for Treating Wage Index Fluctuations Caused by the FY 2015 LTCH PPS Final Rule Differently than Similar Situations ......................................................38 VII. CONCLUSION ..................................................................................................................43 Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 5 of 52 ii TABLE OF AUTHORITIES Cases Allina Health Servs. v. Sebelius, 746 F.3d 1102 (D.C. Cir. 2014)...................................... 9, 27, 32 Allina Health Servs. v. Sebelius, 904 F. Supp. 2d 75 (D.D.C. 2012).................................. 9, 31, 38 Am. Med. Ass’n v. Reno, 57 F.3d 1129 (D.C. Cir. 1995) ................................................................ 7 Am. Radio Relay League, Inc. v. FCC, 524 F.3d 227 (D.C. Cir. 2008) .................................... 7, 24 Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) ................................................................. 15 Arizona Pub. Serv. Co. v. EPA, 211 F.3d 1280 (D.C. Cir. 2000) ....................................... 9, 29, 31 Banner Health v. Sebelius, No. 07-1614, 2010 WL 2265039 (D.D.C. June 7, 2010) .................. 17 Bellevue Hosp. Ctr. v. Leavitt, 443 F.3d 163 (2d Cir. 2006) ........................................................ 40 BellSouth Corp. v. FCC, 162 F.3d 1215 (D.C. Cir. 1999) ............................................................ 17 Bowen v. Am. Hosp. Ass’n, 476 U.S. 610 (1986) ......................................................................... 16 Burlington Truck Lines v. United States, 371 U.S. 156 (1962) .................................................... 33 Cent. Or. Hosp. Dist. v. Sullivan, 757 F. Supp. 1134 (D. Or. 1991) ............................................ 33 Chamber of Commerce of the U.S. v. SEC, 412 F.3d 133 (D.C. Cir. 2005) ................................. 17 Charter-Operators of Alaska v. Blank, 844 F. Supp. 2d 122 (D.D.C. 2012) ............................... 15 Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402 (1971) ...................................... 16 City of New Orleans v. SEC, 969 F.2d 1163 (D.C. Cir. 1992) ..................................................... 24 Conn. Light & Power Co. v. NRC, 673 F,2d 525 (D.C. Cir. 1982) ........................................ 24, 26 Conservation Law Found. v. Fed. Highway Admin., 630 F. Supp. 2d 183 (D.N.H. 2007) .......... 25 Cty. of L.A. v. Shalala, 192 F.3d 1005 (D.C. Cir. 1999) ................................................... 17, 38, 39 D.C. Hosp. Ass’n Wage Index Grp. Appeal, HCFA Admin. Dec. (January 15, 1993) ................. 14 Fla. Power & Light Co. v. United States, 846 F.2d 765 (D.C. Cir. 1988).................................... 20 Greater Boston Television Corp. v. FCC, 444 F.2d 841 (D.C. Cir. 1970) ............................... 7, 20 Greyhound Corp. v. ICC, 551 F.2d 414 (D.C. Cir. 1977) ............................................................ 17 Heartland Reg’l Med. Ctr. v. Sebelius, 566 F.3d 193 (D.C. Cir. 2009) ....................................... 27 Home Box Office, Inc. v. FCC, 567 F.2d 9 (D.C. Cir. 1977) .................................................. 20, 25 Honeywell Int’l, Inc. v. EPA, 372 F.3d 441 (D.C. Cir. 2004) ....................................................... 19 Hunterdon/Somerset 2001 Wage Index Grp. v. Riverbend Gov’t Benefits Adm’r, PRRB Hearing Dec. No. 2004-D13, Case No. 01-1881GE (Apr. 14, 2004) ..................................................... 14 Int’l Union, United Mine Workers of Am. v. Mine Safety & Health Admin., 407 F.3d 1250 (D.C. Cir. 2005) .......................................................................................................................... 8, 9, 31 Kaiser Found. Hosp. v. Sebelius, 828 F. Supp. 2d 193 (D.D.C. 2011) ........................................ 39 Marsh v. Oregon Natural Res. Council, 490 U.S. 360 (1989) ..................................................... 16 Mercy Med. Skilled Nursing Facility v. Thompson, No. C.A. 01-2014TPJ, 2004 WL 3541332 (D.D.C. May 14, 2004) ............................................................................................................. 17 Motor Vehicle Mfrs. Ass’n of the U.S., Inc. v. State Farm Mut. Auto. Ins., 463 U.S. 29 (1983) . 17, 33, 37, 38 Muwekma Ohlone Tribe v. Salazar, 708 F.3d 209 (D.C. Cir. 2013) ............................................ 38 Ne. Md. Waste Disposal Auth. v. EPA, 358 F.3d 936 (D.C. Cir. 2004) .................................... 9, 31 Occidental Eng’g Co. v. INS, 753 F.2d 766 (9th Cir. 1985) ......................................................... 15 Owner–Operator Indep. Drivers Ass'n, Inc. v. Fed. Motor Carrier Safety Admin., 494 F.3d 188 (D.C. Cir. 2007) .................................................................................................................. 20, 23 Portland Cement Ass’n v. Ruckelshaus, 486 F.2d 375 (D.C. Cir. 1973) ...................................... 25 Pub. Citizen, Inc. v. FAA, 988 F.2d 186 (D.C. Cir. 1993) ............................................................ 16 Richards v. INS, 554 F.2d 1173 (D.C. Cir. 1977) ......................................................................... 16 Shays v. FEC, 337 F. Supp. 2d 28 (D.D.C. 2004) ........................................................................ 34 Sierra Club v. Mainella, 459 F. Supp. 2d 76 (D.D.C. 2006) ........................................................ 15 St. James Hosp. v. Heckler, 760 F.2d 1460 (7th Cir. 1985) ......................................................... 34 Summer Hill Nursing Home LLC v. Johnson, 603 F. Supp. 2d 35 (D.D.C. 2009) ....................... 33 Transactive Corp. v. United States, 91 F.3d 232 (D.C. Cir. 1996) ......................................... 17, 39 Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 6 of 52 iii United States v. Nova Scotia Food Products Corp., 568 F.2d 240 (2d Cir. 1977) ................. 20, 24 Universal Camera Corp v. NLRB, 340 U.S. 474 (1951) .............................................................. 17 Util. Solid Waste Activities Grp. v. EPA, 236 F.3d 749 (D.C. Cir. 2001) .................................... 23 Verdant Health Comm’n v. Burwell, 127 F. Supp. 3d 1116 (W.D. Wash. 2015) ................... 38, 42 Walter O. Boswell Mem’l Hosp. v Heckler, 628 F.Supp 1121 (D.D.C. 1985) ............................. 34 WLOS TV, Inc. v. FCC, 932 F.2d 993 (D.C. Cir. 1991) ............................................................... 17 Wood v. Betlach, 922 F. Supp. 2d 836 (D. Ariz. 2013) ................................................................ 33 Statutes 42 U.S.C. § 1395-1395lll ............................................................................................................ 1, 2 42 U.S.C. § 1395c ........................................................................................................................... 2 42 U.S.C. § 1395cc ......................................................................................................................... 2 42 U.S.C. § 1395hh(a)(2) .......................................................................................................... 8, 28 42 U.S.C. § 1395hh(a)(4) .................................................................................................... 8, 28, 31 42 U.S.C. § 1395hh(b)(1) ......................................................................................................... 8, 28 42 U.S.C. § 1395kk ......................................................................................................................... 2 42 U.S.C. § 1395oo(f)(1) ................................................................................................................ 1 5 U.S.C. § 551-559 ......................................................................................................................... 1 5 U.S.C. § 553 ..................................................................................................................... 7, 19, 20 5 U.S.C. § 553(b) ...................................................................................................................... 7, 18 5 U.S.C. § 553(b)(3) ..................................................................................................................... 19 5 U.S.C. § 553(b)-(d) .................................................................................................................... 19 5 U.S.C. § 553(c) ...................................................................................................................... 7, 20 5 U.S.C. § 701-706 ......................................................................................................................... 1 5 U.S.C. § 706 ............................................................................................................................... 15 5 U.S.C. § 706(2)(A).............................................................................................................. passim 5 U.S.C. § 706(2)(A)-(C) ........................................................................................................ 16, 18 5 U.S.C. § 706(2)(D)..................................................................................................................... 20 5 U.S.C. § 706(2)(E) ..................................................................................................................... 17 Regulations 42 C.F.R. § 405.1835(a)(2) 14 42 C.F.R. § 405.1835(a)(3) 14 42 C.F.R. § 405.1842 14, 18 42 C.F.R. § 412.515 3 42 C.F.R. § 412.521 3 42 C.F.R. § 412.525(c) 4 42 C.F.R. § 412.64(b) 5 FY 2005 IPPS/LTCH PPS Final Rule, 69 Fed. Reg. 48,916 (Aug. 11, 2004) 8, 30 FY 2005 IPPS/LTCH PPS Proposed Rule, 69 Fed. Reg. 28,196 (May 18, 2004) 29 FY 2008 IPPS/LTCH PPS Final Rule, 72 Fed. Reg. 47,130 (Aug. 22, 2007) 3 FY 2015 IPPS/LTCH PPS Final Rule, 79 Fed. Reg. 49,854 (Aug. 22, 2014) passim FY 2015 IPPS/LTCH PPS Proposed Rule, 79 Fed. Reg. 27,978 (May 15, 2015) 22, 27 FY 2016 IPPS/LTCH PPS Final Rule, 80 Fed. Reg. 49,326 (Aug. 17, 2015) passim Other Authorities About Metropolitan and Micropolitan Statistical Areas, OMB, http://www.census.gov/population/metro/about (last visited Apr. 4, 2017) ............................. 34 Fed. R. Civ. P. 56(a) ..................................................................................................................... 15 OMB Bulletin No. 13–01 at 11, 33 (Feb. 28, 2013) ..................................................................... 43 Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 7 of 52 I. INTRODUCTION This action arises under Title XVIII of the Social Security Act, as amended, 42 U.S.C. §§ 1395-1395lll (the “Medicare Act”) and the Administrative Procedure Act (“APA”), 5 U.S.C. §§ 551-559, 701-706. Before filing its Complaint, the Plaintiff received a final agency determination from the Provider Reimbursement Review Board (“PRRB”) granting the Plaintiff’s request for expedited judicial review (“EJR”), Administrative Record (“A.R.”) at 1-4, pursuant to which the Plaintiff now files this Complaint under 42 U.S.C. § 1395oo(f)(1), A.R. at 49. The PRRB decided that it did not have authority to decide the legal question of whether the regulation, the Plaintiff’s wage index, was properly calculated under Long-Term Care Hospital Prospective Payment System (“LTCH PPS”). A.R. at 3-4. Plaintiff Post Acute Medical at Hammond, LLC d/b/a Post Acute Specialty Hospital of Hammond is a Medicare-certified long-term care hospital (“LTCH”) that seeks to set aside the wage index under the LTCH PPS for Fiscal Year (“FY”) 2016 promulgated by the Centers for Medicare & Medicaid Services (“CMS”) and published in the Federal Register on August 17, 2015. FY 2016 IPPS/LTCH PPS Final Rule, 80 Fed. Reg. 49,326, 49,797-800, Tables 12A and 12B (Aug. 17, 2015) (“FY 2016 Final Rule”) (Rulemaking Record (“R.R.”) at 488-91, A.R. 65- 75). CMS promulgated the LTCH PPS wage index for the Plaintiff for FY 2016 in violation of the APA and the Medicare Act. CMS did not provide sufficient notice in the proposed rule for the FY 2016 LTCH PPS of the significant year-to-year variability in the wage index amount for LTCHs, like Plaintiff, that are one of only a few LTCHs in the same geographic region. Without sufficient notice from CMS, the Plaintiff could not submit meaningful comments and suggested policies to address this issue. In addition, CMS did not discuss or adopt policy changes in the proposed or final rule to address this issue, despite creating special policies to reduce wage index Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 8 of 52 2 variability for LTCHs in similar situations. The Defendant’s improper adoption of the LTCH PPS wage index for FY 2016 harmed the Plaintiff by decreasing the Plaintiff’s Medicare reimbursement for inpatient services rendered by Plaintiff in FY 2016 by approximately $1,046,874. A.R. at 307. Plaintiff requests that the Court rule that (i) the wage index under the LTCH PPS for FY 2016 is invalid as a matter of law, and (ii) the Secretary must use the FY 2015 LTCH PPS wage index to reimburse Plaintiff’s FY 2016 Medicare claims until the Secretary effectuates a policy, after reasoned analysis and notice and comment, to avoid or significantly reduce the negative impact of the reduction to Plaintiff’s FY 2016 LTCH PPS wage index amount, and reduce year- to-year variability in Plaintiff’s wage index amount in the future. II. STATUTORY AND REGULATORY BACKGROUND A. The Medicare Program The Medicare Act at Title XVIII of the Social Security Act, as amended, 42 U.S.C. § 1395-1395lll, establishes a system of health insurance for the aged and disabled. 42 U.S.C. § 1395c. Medicare insurance is comprised of various benefit categories, including a hospital insurance benefit, which generally pays for inpatient hospital services and other institutional provider care. Id.; see CMS Medicare Benefit Policy Manual (CMS Pub. 100-02), Ch. 1 § 1. The Medicare program is federally funded and administered by the Secretary through the CMS. 42 U.S.C. § 1395kk. Plaintiff has entered into a written agreement with the Secretary to provide hospital services to eligible individuals as a “provider of services” under the Medicare Act. 42 U.S.C. § 1395cc. B. The Long-Term Care Hospital Prospective Payment System (LTCH PPS) Under the Medicare program, different payment methodologies are used to reimburse different types of providers. The Medicare reimbursement system for LTCHs, the LTCH PPS, is Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 9 of 52 3 based on different levels of cost than the system applicable to general acute care hospitals. For general acute care hospitals, Medicare inpatient costs are reimbursed under the inpatient hospital prospective payment system (“IPPS”) in which a hospital receives a fixed payment amount per discharge (adjusted for area wage differences) using diagnosis related groups (“DRGs”).1 The general acute care hospital DRG payment rate is based on the national average cost of treating a Medicare patient’s condition in that type of facility. Although the average length of stay varies for each DRG, the average stay of all Medicare patients in a general acute care hospital is approximately six days. Thus, the prospective payment system for general acute care hospitals is not designed to reimburse hospitals on a regular basis for long-stay hospital care. For a hospital to be reimbursed under the LTCH PPS, by contrast, it must have an average Medicare inpatient length of stay that is greater than twenty-five days, which reflects the medically complex cases treated in LTCHs. Each patient discharged from a LTCH is assigned to a distinct long-term care diagnosis-related group (“LTC-DRG”),2 and the LTCH is generally paid a predetermined fixed amount applicable to the assigned LTC-DRG (adjusted for area wage differences). The payment amount for each LTC-DRG is intended to reflect the average cost of treating a Medicare patient assigned to that LTC-DRG in a LTCH. Weights are assigned to DRGs and LTC-DRGs on an annual basis that are multiplied against a Federal standard rate to arrive at the payment for the discharged patient, after taking other adjustments into consideration. See 42 C.F.R. §§ 412.515, 412.521. Most of the LTC- 1 The IPPS final rule for FY 2008 refined the DRG patient classification system to take into account the severity of the patient’s condition for the first time. See 72 Fed. Reg. 47,130 (Aug. 22, 2007). These Medicare-severity DRGs or “MS-DRGs” were created to account for complications or comorbidities. Id. 2 The IPPS final rule for FY 2008 also created Medicare-severity DRGs for LTCH PPS, referred to as “MS-LTC-DRGs”. See id. Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 10 of 52 4 DRGs for LTCHs are the same as the DRGs for general acute care hospitals, but the weights are generally higher. In addition, the Federal standard rate has been much greater for LTCHs than for general acute care hospitals: $41,762.85 under the LTCH PPS for FY 2016, 80 Fed. Reg. at 49,797 (R.R. at 488), compared to approximately $6,000 under the IPPS for FY 2016, id. at 48,787, 49,794 (R.R. at 485) (operating and capital rates combined). The geographic location of a hospital influences its Medicare payments. This is accomplished through the LTCH PPS by including a labor-related share in the standard Federal rate. Under the authority of section 123 of the BBRA, as amended by section 307(b) of the BIPA, CMS established an adjustment to the LTCH PPS standard Federal rate to account for differences in LTCH area wage levels. 42 C.F.R. § 412.525(c). The labor-related share of the LTCH PPS standard Federal rate is adjusted to account for geographic differences in area wage levels by applying the applicable LTCH PPS wage index. The applicable LTCH PPS wage index is computed using wage data from inpatient acute care hospitals without considering reclassifications under section 1886(d)(8) or section 1886(d)(10) of the Act. 80 Fed. Reg. at 49,797 (R.R. at 488). When the LTCH PPS was first implemented, CMS gave LTCHs a 5-year transition period to the full area wage level adjustment. Id. In FY 2016, the labor-related share accounted for 62 percent of LTCH payments. Id. at 49,798 (R.R. at 489). C. LTCH PPS Wage Index Under the LTCH PPS, CMS adjusts payments through wage indexes to reflect labor cost variations among localities. CMS uses the Core-Based Statistical Areas (“CBSAs”) established by the Office of Management and Budget (“OMB”) to identify labor markets and to calculate and assign wage indexes to hospitals. CMS calculates a wage index for each CBSA and a statewide rural wage index for each State, based on the average hourly wage rate of the hospitals Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 11 of 52 5 in those areas, divided by the national average hourly wage rate. All hospitals within a CBSA or within a statewide rural area receive the same labor-related share. For the FY 2015 LTCH PPS, effective for discharges on or after October 1, 2014, CMS based the geographic classifications (labor market area definitions) on the new OMB labor market area delineations from the 2010 Decennial Census data. Id. at 49,797 (R.R. at 488). CMS made these revisions because they believed that “these OMB delineations are based on the best available data that reflect the local economies and area wage levels of the hospitals that are currently located in these geographic areas.” Id. CMS also believed “that these OMB delineations will ensure that the LTCH PPS area wage level adjustment most appropriately accounts for and reflects the relative hospital wage levels in the geographic area of the hospital as compared to the national average hospital wage level.” Id. CMS used the same approach with the IPPS in FY 2015. 42 C.F.R. § 412.64(b); FY 2015 IPPS/LTCH PPS Final Rule, 79 Fed. Reg. 49,854, 49,951-63 (Aug. 22, 2014) (“FY 2015 Final Rule”) (R.R. at 7,854-66). To “mitigate the impact imposed upon hospitals,” CMS has “in the past provided for transition periods when adopting changes that have significant payment implications, particularly large negative impacts.” FY 2015 Final Rule, 79 Fed. Reg. at 50,183 (R.R. at 8,086). Accordingly, CMS adopted a 1-year transition policy for LTCHs that experienced a decrease in wage index due to the new CBSAs. Id. at 50,184 (R.R. at 8,087). The transition period provided for a 50/50 blended area wage index value calculated as the sum of 50 percent of the wage index computed under the FY 2014 CBSA designations and 50 percent of the wage index computed under the new CBSAs for FY 2015. Id. This transition period policy was adopted in a budget neutral manner. Id. CMS did not adopt the suggestion of some commenters to extend the transition period “to allow hospitals more time to operationally adjust to the change to their area Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 12 of 52 6 wage adjustment” because, according to CMS, this “would only further delay the improved accuracy of area wage level adjustments to LTCH PPS payments under the new OMB delineations.” Id. CMS generally updates the CBSA-based labor market area delineations for the PPS wage indexes any year the CBSAs are updated by OMB. 80 Fed. Reg. at 49,797 (R.R. at 488). When CMS developed the FY 2016 LTCH PPS proposed rule, OMB had not issued any updates to the CBSAs subsequent to OMB Bulletin No. 13-01, dated February 28, 2013. Id. at 49,798 (R.R. at 489). Therefore, for FY 2016, CMS continued to use the CBSA-based labor market area delineations used in the FY 2015 LTCH PPS. Compare 79 Fed. Reg. at 50,180-85. (R.R. at 8,083-88) with 80 Fed. Reg. at 49,798 (R.R. at 489). In choosing to keep the same geographic classifications, CMS said: We believe that these CBSA-based labor market area delineations will ensure that the LTCH PPS area wage level adjustment most appropriately accounts for and reflects the relative hospital wage levels in the geographic area of the hospital as compared to the national average hospital wage level based on the best available data that reflect the local economies and area wage levels of the hospitals that are currently located in these geographic areas. 80 Fed. Reg. at 49,798 (R.R. at 489). To calculate wage indexes, CMS uses hospital wage data (which include wages, salaries, and related hours) collected 4 years earlier to allow time for the collection of complete cost report data from all IPPS hospitals and for reviews of hospital wage data by CMS’s payment contractors. CMS based the LTCH PPS wage indexes for FY 2016 on wage data collected from IPPS hospitals’ Medicare cost reports for their FYs that began during Federal FY 2012, without taking into account geographic reclassification. Id. at 49,797 (R.R. at 488). In this way, CMS uses IPPS hospital wage data as a proxy for determining the wage index values under the LTCH PPS. The FY 2016 LTCH wage index values for LTCH discharges on or after October 1, 2015 Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 13 of 52 7 through September 30, 2016 are presented in Table 12A (for urban areas) and Table 12B (for rural areas) of the final rule. Id., Table 12A - CBSA Code 25220 Hammond, LA (Aug. 17, 2015). 3 D. Rulemaking Requirements Under the Administrative Procedure Act The Administrative Procedure Act sets forth the procedural requirements an agency must follow in rulemaking. An agency must (1) provide notice of the proposed rule which sets forth “either the terms or substance of the proposed rule or a description of the subjects and issues involved,” 5 U.S.C. § 553(b); (2) “give interested persons an opportunity to participate in the rule making through submission of written data, views, or arguments with or without opportunity for oral presentation,” id. at § 553(c); and (3) incorporate “a concise general statement of . . . basis and purpose” in the final rules it adopts. Id. These requirements “serve important purposes of agency accountability and reasoned decisionmaking, [and] impose a significant duty on the agency.” Am. Med. Ass’n v. Reno, 57 F.3d 1129, 1132 (D.C. Cir. 1995). To satisfy the APA’s notice requirement, an agency must provide “sufficient detail on [the proposed rule’s] content and basis in law and evidence to allow for meaningful and informed comment.” Id. Moreover, “in adopting the final rule, the agency must ‘articulate with reasonable clarity its reasons for decision, and identify the significance of the crucial facts.’” Id. at 1133 (quoting Greater Boston Television Corp. v. FCC, 444 F.2d 841, 851 (D.C. Cir. 1970)). Notice is insufficient if parties are deprived of the opportunity to present relevant information by lack of agency notice that the issue was there. Am. Radio Relay League, Inc. v. FCC, 524 F.3d 227, 236 (D.C. Cir. 2008). 3 Tables 12A and 12B are available at https://www.cms.gov/Medicare/Medicare-Fee-for- Service-Payment/LongTermCareHospitalPPS/LTCHPPS-Regulations-and-Notices-Items/LTCH- PPS-CMS-1632-F.html?DLPage=1&DLEntries=10&DLSort=3&DLSortDir=descending. Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 14 of 52 8 CMS itself acknowledged that “[a]ny changes to the LTCH PPS regulations would be made in accordance with Administrative Procedures Act guidelines.” FY 2005 IPPS/LTCH PPS Final Rule, 69 Fed. Reg. 48,916, 49,000 (Aug. 11, 2004) (“FY 2005 Final Rule”). E. Rulemaking Requirements Under the Medicare Act Section 1871 of the Medicare Act requires that the Secretary provide the public with adequate notice of a proposed rule and an opportunity to comment on that proposed rule. See Social Security Act (“SSA”) § 1871(b)(1), 42 U.S.C. § 1395hh(b)(1) (“[B]efore issuing in final form any regulation . . . the Secretary shall provide for notice of the proposed regulation in the Federal Register and a period of not less than 60 days for public comment thereon”). In this way, the Medicare Act reinforces the notice and comment rulemaking requirements of the APA. See also SSA § 1871(a)(2), 42 U.S.C. § 1395hh(a)(2) (“No rule, requirement, or other statement of policy . . . that establishes or changes a substantive legal standard governing . . . the payment for services . . . shall take effect unless it is promulgated by the Secretary by regulation under [Section 1871(a)(1)].”). “Notice requirements are designed (1) to ensure that agency regulations are tested via exposure to diverse public comment, (2) to ensure fairness to affected parties, and (3) to give affected parties an opportunity to develop evidence in the record to support their objections to the rule and thereby enhance the quality of judicial review.” Int’l Union, United Mine Workers of Am. v. Mine Safety & Health Admin., 407 F.3d 1250, 1259 (D.C. Cir. 2005). Under the Medicare Act, Congress holds the Secretary to the Medicare Act’s notice requirements precisely because proper notice gives affected parties an opportunity to evaluate the agency’s proposals, offer constructive criticism and suggest ways to improve a proposed rule and offer alternatives. Like the APA, the Medicare Act also prohibits the Secretary from issuing a final rule that does not correspond directly to the proposed rule. SSA § 1871(a)(4), 42 U.S.C. § 1395hh(a)(4) Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 15 of 52 9 (“If the Secretary publishes a final regulation that includes a provision that is not a logical outgrowth of a previously published notice of proposed rulemaking or interim final rule, such provision shall be treated as a proposed regulation and shall not take effect until there is the further opportunity for public comment and a publication of the provision again as a final regulation.”). “An agency may promulgate a final rule that is different from a proposed rule, but only if the final rule is a ‘logical outgrowth’ of the proposed rule, i.e., only if ‘interested parties ‘should have anticipated that the change was possible, and thus reasonably should have filed their comments on the subject during the notice-and-comment period.’’” Allina Health Servs. v. Sebelius, 904 F. Supp. 2d 75, 85-86 (D.D.C. 2012) (quoting Int’l Union, UMWA, 407 F.3d at 1259 and Ne. Md. Waste Disposal Auth. v. EPA, 358 F.3d 936, 952 (D.C. Cir. 2004), aff'd in part, rev'd in part, 746 F.3d 1102 (D.C. Cir. 2014)). Therefore, “neither a brand-new rule nor one built on vague insinuations for which an interested party would have had to ‘divine [the Agency's] unspoken thoughts’ will qualify as a ‘logical outgrowth.’” Allina Health Servs., 904 F. Supp. 2d at 86 (quoting Arizona Pub. Serv. Co. v. EPA, 211 F.3d 1280, 1299 (D.C. Cir. 2000); Int'l Union, UMWA, 407 F.3d at 1260). Although the rulemaking requirements of the Medicare Act are similar to the rulemaking requirements in the APA, they are not identical. For example, the “logical outgrowth” requirement at SSA § 1871(a)(4) (42 U.S.C. § 1395hh(a)(4)) does not contain a harmless error exception. Allina Health Servs. v. Sebelius, 746 F.3d 1102, 1109 (D.C. Cir. 2014). III. STATEMENT OF MATERIAL FACTS ON THE ADMINISTRATIVE RECORD Section 123 of the Balanced Budget Refinement Act of 1999 (“BBRA”), Pub. L. No. 106-113, 113 Stat. 1501, as amended by section 307(b) of the Benefits Improvement and Protection Act of 2000 (“BIPA”), Pub. L. No. 106-554, 114 Stat. 2763, established an Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 16 of 52 10 adjustment to the LTCH PPS standard Federal rate to account for differences in LTCH area wage levels. The labor-related share of the standard Federal rate is adjusted to account for geographic differences in area wage levels by applying the LTCH PPS wage index. FY 2016 Final Rule, 80 Fed. Reg. at 49,797 (R.R. at 488). The applicable LTCH PPS wage index is derived from the cost reporting data of inpatient acute care hospitals within a prescribed geographic region, without regard to reclassifications. Id. CMS instituted a significant change to the LTCH PPS wage index when it altered the statistical basis of how it delineates hospital labor market areas using the CBSA established by the OMB for inpatient acute care hospitals. FY 2015 Final Rule, 79 Fed. Reg. at 49,951 (R.R. at 7,854). The FY 2015 Final Rule transformed some urban counties into rural counties and vice- versa, while other existing CBSAs were “split apart.” Id. Plaintiff belongs to one of the CBSAs that was “split apart.” Plaintiff’s county, Tangipahoa Parish, Louisiana, is listed in the FY 2015 Final Rule as one of the counties that changed from rural (CBSA Code 19) to urban (CBSA Code 25220 – Hammond, LA). Id. at 49,954 (R.R. at 7,857). Typically, hospitals located in an urban area receive a higher wage index value than hospitals located in a rural area. Id. at 49,961 (R.R. at 7,864). Under the previous rural geographic designation (CBSA Code 19), the CBSA for the Plaintiff’s county included thirty-five different hospitals. Under the new urban geographic designation (CBSA Code 25220), there are only two hospitals – the Plaintiff and North Oaks Medical Center. Id. at FY 2015 Final Rule, Wage Index Public Use Files, FY_2015_FINAL_provcbsaahw, line 1283, https://www.cms.gov/Medicare/Medicare-Fee-for- Service-Payment/AcuteInpatientPPS/Downloads/FY2015-FR-Wage-Index-PUF.zip. North Oaks Medical Center is located in Hammond, Louisiana, across the street from the Plaintiff, less than Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 17 of 52 11 0.4 miles away. North Oaks Medical Center is a short-term acute care hospital paid under the IPPS. North Oaks Medical Center was reclassified to a different CBSA wage index (CBSA 35380 – New Orleans-Metairie, LA) in 2014 to benefit from the higher urban CBSA. See Medicare Geographic Classification Review Board Decision, Case No. 14C0188 (2014), referenced at MGCRB 2014 Case Status Listing (Aug. 9, 2013), https://www.cms.gov/Regulations-and-Guidance/Review-Boards/MGCRB/Downloads/MGCRB- 2014-Decision-Listing-Case-Number.pdf. Accordingly, its wage index for FY 2016 is 0.8495 based upon its reclassified CBSA. See FY 2016 IPPS/LTCH PPS Final Rule Correction, 80 Fed. Reg. 60,055 (Oct. 5, 2015) (Table 2 Corrected – Provider Number 190015) (R.R. at 1). In the FY 2015 Final Rule, CMS provided a one year transition policy, with a 50/50 blended wage index, to address the short-term instability of the first year of the new CBSA-based wage index for any LTCH that was expected to have a decrease in its area wage index value solely due to the adoption of the new OMB delineations. FY 2015 Final Rule, 79 Fed. Reg. at 50,183-85 (R.R. at 8,086-8,088). CMS did not extend this transition policy to FY 2016, or provide any other transition policy for the LTCH PPS wage index in the FY 2016 Final Rule. CMS also provided a three year transition policy for IPPS hospitals if they changed from an urban CBSA to a rural CBSA in FY 2015, but CMS did not provide this three year transition to LTCHs because the agency found no LTCHs that were changing from an urban to a rural CBSA. Id. at 50,183 (R.R. at 8,086). In the FY 2016 Final Rule, CMS used the new statistical basis to reduce the Plaintiff’s wage level adjustment to 0.8167. FY 2016 Final Rule, 80 Fed. Reg. 49,326 (Aug. 17, 2015) (Table 12A – CBSA Code 25220 Hammond, LA) (R.R. at 16). This constituted approximately a fourteen percent decline from the Plaintiff’s previous wage index of 0.9452. FY 2015 Final Rule, Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 18 of 52 12 79 Fed. Reg. 49,854 (Aug. 22, 2014) (Table 12A – CBSA Code 25220 Hammond, LA) (R.R. at 7,757). The change in wage level adjustment decreased Plaintiff’s Medicare reimbursement by approximately $1,046,874 in FY 2016, as calculated in the table below. Post Acute Specialty Hospital of Hammond Wage Index Change Impact Calculation July 1, 2014 - June 30, 2015 Medicare days 7,568 A Medicare revenue for same period $ 13,075,592 B Revenue PPD (B / A) $ 1,728 C LABOR SHARE 0.62306 D WAGE INDEX (FY 2015) 0.94520 E WAGE INDEX (FY 2016) 0.81670 F PPD Related to Wage Index (FY 2015) (DxExC) $ 1,017 G PPD Related to Wage Index (FY 2016) (DxFxC) $ 879 H Difference (G-H) $ 138 I IMPACT OF FY 2016 CHANGE (IxA) $ 1,046,874 The steep decline in the Plaintiff’s Medicare reimbursement is partly attributable to a decrease in wages for the geographic area corresponding to CBSA Code 25220. However, because CBSA Code 25220 now contains only two hospitals, even a small decrease in wages has a disproportionate impact. This abrupt reduction in the provider pool used to compute the wage index for CBSA Code 25220 has resulted in extreme wage index fluctuations that primarily hinge on the wages paid by a single large hospital in this CBSA, North Oaks Medical Center. Less than two months after issuing the FY 2016 Final Rule, CMS issued a correction notice that included a Corrected LTCH PPS Wage Index, but the wage index amount for the Plaintiff did not change. FY 2016 IPPS/LTCH PPS Final Rule Correction, 80 Fed. Reg. 60,055 (Oct. 5, 2015) (Table 12A Corrected – CBSA Code 25220 Hammond, LA) (R.R. at 1). Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 19 of 52 13 No facts material to the Plaintiff’s appeal are in dispute. The Plaintiff is directly challenging the FY 2016 LTCH PPS wage index in the final rule and correction notice for APA and Medicare Act violations. The reduction in the Plaintiff’s wage index from FY 2015 to FY 2016 is documented in the Federal Register. FY 2015 IPPS/LTCH PPS Final Rule, 79 Fed. Reg. 49,854, Table 12A – CBSA Code 25220 Hammond, LA (Aug. 22, 2014) (R.R. at 7,757); FY 2016 IPPS/LTCH PPS Final Rule, 80 Fed. Reg. 49,326, Table 12A - CBSA Code 25220 Hammond, LA (Aug. 17, 2015) (R.R. at 16); FY 2016 IPPS/LTCH PPS Final Rule Correction, 80 Fed. Reg. 60,055, Table 12A Corrected - CBSA Code 25220 Hammond, LA (Oct. 5, 2015) (R.R. at 1). It is irrefutable that the Plaintiff experienced a significant loss in reimbursement as a result. IV. PROCEDURAL HISTORY On October 6, 2015, Plaintiff submitted an Individual Appeal Request to the Provider Reimbursement Review Board. A.R. at 268-310. The documents exchanged as part of this filing included: (1) the final agency determination in the LTCH PPS Wage Index (Tables 12A and 12B) included in the FY 2016 LTCH PPS Final Rule, dated August 17, 2015 (see Tab 1); (2) the relevant sections of the preamble to the FY 2016 LTCH PPS Final Rule discussing the LTCH PPS Wage Index; (3) the correction notice to the FY 2016 LTCH PPS Final Rule, dated October 5, 2015 (see Tab 1); and (4) the corrected LTCH PPS Wage Index amount for this Plaintiff at corrected Tables 12A and 12B, which is the same (see Tab 1). A.R. at 273-303. At issue was whether CMS failed to properly calculate or adjust the wage index for the Plaintiff under the LTCH PPS for FY 2016. Plaintiff requested that the FY 2016 wage index be set aside and the wage index for the Plaintiff continue to be the FY 2015 wage index, or the Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 20 of 52 14 matter remanded to the Secretary to determine a more appropriate wage index for FY 2016 that reduces the negative impact of the two-hospital CBSA in which the Plaintiff is located. Because this issue turns on the pure legal question of whether the FY 2016 LTCH PPS wage index is legally valid and enforceable, which the PRRB lacks authority to decide, Plaintiff requested expedited judicial review in order to bring the issue before this Court. In this request, Plaintiff established that all three requirements for expedited judicial review were satisfied. First, Plaintiff was eligible for a PRRB hearing because the estimated $1,046,874 amount-in- controversy exceeded the $10,000 minimum required by 42 C.F.R. § 405.1835(a)(2), and the appeal was filed within the 180-day timeframe set forth in 42 C.F.R. § 405.1835(a)(3). Moreover, the Secretary previously decided that the PRRB has jurisdiction over a hospital’s challenge to the wage index published in the Federal Register even though a cost report determination has not yet been made. See D.C. Hosp. Ass’n Wage Index Grp. Appeal, HCFA Admin. Dec. (Jan. 15, 1993) (“Based on the controlling case law, the Administrator determines that the publication of the wage index in the Federal Register constitutes a ‘final determination of the Secretary’ for purposes of Section 1878(a)(1)(A)(ii) of the Act.”). Second, there were no factual issues in dispute. Third, the case turns on a legal question that the PRRB lacks authority to decide under 42 C.F.R. § 405.1842. Like previous PRRB cases that were certified for expedited judicial review, this case is not one where the hospital is challenging its own wage data, but rather the CMS wage index policy that failed to account for significant year-to-year variability in the wage index for hospitals in revised CBSAs with few other hospitals. See St. Michael’s Med. Ctr. v. Sebelius, 648 F. Supp. 2d 18, 23 (D.D.C. 2009); Hunterdon/Somerset 2001 Wage Index Grp. v. Riverbend Gov’t Benefits Adm’r, PRRB Hearing Dec. No. 2004-D13, Case No. 01-1881GE (Apr. 14, 2004). Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 21 of 52 15 The PRRB granted Plaintiff’s motion for expedited judicial review on April 18, 2016. Dkt. 1, Complaint, Ex. 1. The PRRB decided that “it has jurisdiction over the appeal” but that it “lacks the authority to decide the legal question of whether the regulation, the Provider’s wage index was properly calculated under LTCH PPS.” Id., Ex. 1, at 4 (A.R. at 4). Accordingly, the PRRB found “that the wage index calculation for this LTCH properly falls within the provisions of 42 U.S.C. § 1395oo(f)(1) and hereby grants expedited judicial review on its own motion for the issue and the subject year.” Id. On June 21, 2016, Plaintiff then timely filed a Complaint with this Court for judicial review of the challenged wage index rule. Dkt. 1, Complaint. V. STANDARD OF REVIEW A. Summary Judgment Standard Summary judgment is warranted where the moving party establishes that no genuine issue of material fact is in dispute and that it is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a); accord Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986). “In a case involving review of a final agency action under the [APA], 5 U.S.C. § 706, however, the standard set forth in Rule 56[ ] does not apply because of the limited role of a court in reviewing the administrative record.” Sierra Club v. Mainella, 459 F. Supp. 2d 76, 89 (D.D.C. 2006); see also Charter Operators of Alaska v. Blank, 844 F. Supp. 2d 122, 126-27 (D.D.C. 2012). Under the APA, the agency’s role is to resolve factual issues to reach a decision supported by the administrative record, while “‘the function of the district court is to determine whether or not as a matter of law the evidence in the administrative record permitted the agency to make the decision it did.’” Sierra Club, 459 F. Supp. 2d at 90 (quoting Occidental Eng’g Co. v. INS, 753 F.2d 766, 769 (9th Cir. 1985). “Summary judgment thus serves as the mechanism for deciding, as a matter of law, whether the agency action is supported by the administrative record and Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 22 of 52 16 otherwise consistent with the APA standard of review.” Id. (citing Richards v. INS, 554 F.2d 1173, 1177 & n.28 (D.C. Cir. 1977)). Under the APA, a reviewing court can set aside an agency action if the action is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A). A reviewing court “‘must consider whether the [agency’s] decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment.” Marsh v. Oregon Natural Res. Council, 490 U.S. 360, 378 (1989) (quoting Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971)). At a minimum, the agency must have considered relevant data and articulated an explanation establishing “a rational connection between the facts found and the choice made.” Bowen v. Am. Hosp. Ass’n, 476 U.S. 610, 626 (1986); see also Pub. Citizen, Inc. v. FAA, 988 F.2d 186, 197 (D.C. Cir. 1993) (“The requirement that agency action not be arbitrary or capricious includes a requirement that the agency adequately explain its result . . . .”). B. Administrative Procedure Act Standard The APA requires an agency action to be set aside if it is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law;” “contrary to constitutional right, power, privilege, or immunity;” or “in excess of statutory jurisdiction authority or limitations, or short of statutory right.” 5 U.S.C. §§ 706(2)(A)-(C). The APA directs reviewing courts to engage in “a thorough, probing, in-depth review.” Volpe, 401 U.S. at 415. The scope of review under an arbitrary and capricious standard entails a careful, sharp inquiry as to the following: [whether] the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise. Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 23 of 52 17 Motor Vehicle Mfrs. Ass’n of the U.S., Inc. v. State Farm Mut. Auto. Ins., 463 U.S. 29, 43 (1983). “‘Where the agency has failed to provide a reasoned explanation, or where the record belies the agency’s conclusion, [the court] must undo its action.’” Cty. of L.A. v. Shalala, 192 F.3d 1005, 1021 (D.C. Cir. 1999) (quoting BellSouth Corp. v. FCC, 162 F.3d 1215, 1222 (D.C. Cir. 1999)). Further, an agency action that constitutes an unexplained departure from agency precedent must be overturned as arbitrary and capricious. Transactive Corp. v. United States, 91 F.3d 232, 237- 38 (D.C. Cir. 1996); WLOS TV, Inc. v. FCC, 932 F.2d 993, 996-98 (D.C. Cir. 1991); Greyhound Corp. v. ICC, 551 F.2d 414, 416 (D.C. Cir. 1977). The Court may only consider the reasons relied upon by the agency in reaching its conclusion and may not consider post hoc rationalizations by government counsel. See, e.g., Chamber of Commerce of the U.S. v. SEC, 412 F.3d 133, 143-44 (D.C. Cir. 2005). The agency’s action will not be accorded deference if it “violates the APA because it constitutes a change in the Secretary’s definitive interpretation made without following the required notice-and- comment procedures.” Mercy Med. Skilled Nursing Facility v. Thompson, No. C.A.01-2014 TPJ, 2004 WL 3541332, at *2 (D.D.C. May 14, 2004). The APA also directs courts to hold unlawful agency actions which are “unsupported by substantial evidence in a case.” 5 U.S.C. § 706(2)(E). Substantial evidence “means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion” when taking into account “‘whatever in the record fairly detracts from its weight.’” Banner Health v. Sebelius, No. 07-1614, 2010 WL 2265039, at *7 (D.D.C. June 7, 2010) (quoting Universal Camera Corp. v. NLRB, 340 U.S. 474, 488 (1951)). Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 24 of 52 18 VI. ARGUMENT Plaintiff is challenging the substantive and procedural validity of a regulation—the LTCH wage index in the FY 2016 Final Rule. 42 C.F.R. § 405.1842(f)(1)(ii). This appeal turns on the pure legal issue of whether the FY 2016 LTCH PPS wage index is legally valid and enforceable. In this case, Plaintiff asserts that CMS failed to comply with the APA’s notice and comment rulemaking requirements, 5 U.S.C. § 553(b), the Medicare Act’s rulemaking requirements, 42 U.S.C. §§ 1395hh(a)-(b), and the APA’s arbitrary and capricious standard, 5 U.S.C. § 706(2)(A)-(C), in promulgating the wage index contained in the FY 2016 Final Rule, 80 Fed. Reg. 49,326 (Aug. 17, 2015) (R.R. at 16). The Secretary did not provide sufficient notice to allow for meaningful comment on the FY 2016 LTCH PPS wage index. The Secretary also failed to provide a special wage index policy for hospitals, such as Plaintiff, that are suddenly assigned to a CBSA with few other hospitals, to reduce the year-to-year fluctuations in their wage index amount. The Secretary provided special wage index policies for hospitals in similar situations and, therefore, should have also provided a special wage index policy here. For these reasons, as discussed more fully below, the wage index in the FY 2016 Final Rule is invalid as a matter of law, and CMS’s and the Intermediary’s enforcement of the wage index is thus without legal basis. A. CMS Did Not Provide Sufficient Notice to Allow for Meaningful Comment on the FY 2016 LTCH PPS Wage Index in Violation of APA § 553 The APA requires the Secretary to adopt substantive changes to an existing regulatory scheme according to procedures set forth in the APA, rather than by amendment in a final rule without notice and comment. Specifically, APA section 553 requires the agency to provide the public with a meaningful opportunity to participate in the rulemaking process and compels Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 25 of 52 19 publication or service of a substantive rule not less than 30 days before its effective date. 5 U.S.C. § 553(b)-(d). CMS promulgated the wage index in the FY 2016 Final Rule without sufficient notice to allow an opportunity for the public to submit meaningful comments, and thus violated procedural requirements under the Administrative Procedure Act. CMS violated sections 553 of the APA by failing to adequately notify affected parties of the significance of its decision to retain for FY 2016 the revised labor market delineations that were adopted in the FY 2015 final rule, which prevented the Plaintiff and other hospitals from submitting meaningful comments on the impact it would have on their wage index amount before the rule was finalized. Without sufficient information from CMS on the potential for significant variability in the wage index for hospitals that are located in regions with only a few hospitals in the revised CBSA, the Plaintiff could not understand the significance of the new CBSAs after the first year of implementation, and the public could not provide meaningful comments on this aspect of the FY 2016 LTCH PPS proposed rule. It is well established that the legitimacy of a federal regulation may be called into question when the public is denied the ability to submit meaningful comments. The APA’s notice requirements state that federal agencies must convey the “terms or substance of the proposed rule or a description of the subjects and issues involved,” 5 U.S.C. § 553(b)(3), in adequate detail to allow “interested persons an opportunity to participate in the rule making through submission of written data, views, or arguments,” id. at § 553(c). In short, agencies must provide enough information in the proposed rulemaking to allow for meaningful public comments. See Honeywell Int’l, Inc. v. EPA, 372 F.3d 441, 445 (D.C. Cir. 2004); Reno, 57 F.3d at 1133-34 (explaining that “in adopting the final rule, the agency must ‘articulate with Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 26 of 52 20 reasonable clarity its reasons for decision, and identify the significance of the crucial facts’” (quoting Greater Boston Television Corp., 444 F.2d at 851). The APA’s comment requirements state that federal agencies must “give interested persons an opportunity to participate in the rule making through submission of written data, views, or arguments.” 5 U.S.C. § 553(c). Courts have consistently held that the public’s right to participate in the rulemaking process requires an agency to “provide sufficient factual detail and rationale for the rule to permit interested parties to comment meaningfully.” Fla. Power & Light Co. v. United States, 846 F.2d 765, 771 (D.C. Cir. 1988). See also Home Box Office, Inc. v. FCC, 567 F.2d 9, 35 (D.C. Cir. 1977); United States v. Nova Scotia Food Products Corp., 568 F.2d 240, 251-52 (2d Cir. 1977). In addition, notice must be “fair notice” so that “interested parties should have anticipated the agency’s final course in light of the initial notice.” Owner–Operator Indep. Drivers Ass'n, Inc. v. Fed. Motor Carrier Safety Admin., 494 F.3d 188, 209 (D.C. Cir. 2007). The final wage index for the FY 2016 LTCH PPS was not made in accordance with these requirements. Therefore, the Secretary violated section 553 of the APA, which is also a violation of APA section 706, since it was “without observance of procedure required by law.” 5 U.S.C. §§ 553, 706(2)(D). CMS neglected to disclose the adverse consequences that hospitals moved to CBSAs with few providers would face in both its FY 2015 Proposed Rule and its FY 2016 Proposed Rule, thereby depriving affected parties of the opportunity to submit meaningful comments. It is possible that CMS did not disclose the risk that these providers would face in its FY 2015 Proposed Rule because it was unaware of this risk until after the FY 2015 Proposed Rule was already released. In an addendum at the back of the FY 2015 Final Rule, made available after the Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 27 of 52 21 comment period for the FY 2015 Final Rule had closed, CMS noted for the first time that many of the hospitals projected to experience “a significant decline” in their FY 2015 wage index values were in CBSAs comprised of three or less hospitals. FY 2015 Final Rule, 79 Fed. Reg. at 50,394-95 (R.R. at 8,297-98). CMS suggested that there was a statistical explanation for this phenomenon because “[CBSAs] with fewer providers are generally subject to less stability in year-to-year wage index values because there is less of an averaging effect, wherein even relatively minor changes in one provider’s wage data can produce a relatively ‘significant’ effect on the wage index value for that area.” Id. However, CMS did not attempt to specifically address this issue, solicit public comments on how to proceed, or explain why it felt that the new CBSAs should apply to these providers under the general wage index policy, despite the increased risk of a significant decline in their FY 2015 wage index values. Rather than deal with the issue, CMS provided a generic response that “[w]e believe that these wage index changes are appropriate because these values are based on the most recent data available that reflect the relative hospital wage level in a geographic area (CBSA) in comparison to the national average hospital wage level.” Id. The entire passage reads as follows: In exploring the cause for the decrease in the wage index values for CBSAs projected to experience “a significant decline” in their FY 2015 wage index values when compared to the FY 2014 LTCH PPS wage index values for these CBSAs, we found that many of these CBSAs were comprised of three or less hospitals. A labor market area’s wage index value is calculated as the ratio of the labor market area’s average hourly wage to the national average hourly wage. Labor market areas (CBSAs) with fewer providers are generally subject to less stability in year-to-year wage index values because there is less of an averaging effect, wherein even relatively minor changes in one provider’s wage data can produce a relatively “significant” effect on the wage index value for that area. This is because such a change in one provider’s wage data has a relatively greater effect on the CBSA’s average hourly wage (based solely on the limited number of hospitals in that area) when compared to the effect that such a change has on the national average hourly wage (which is based on wage data from all hospitals). FY 2015 Final Rule, 79 Fed. Reg. at 50,395 (R.R. at 8,298). Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 28 of 52 22 Because CMS did not disclose this problem in the FY 2015 Proposed Rule, but instead first noted it in an addendum to the FY 2015 Final Rule promulgated after the comment period had closed, affected parties were deprived of the opportunity to submit meaningful comments in the FY 2015 rulemaking. Indeed, the near absence of comments submitted to CMS in response to the new CBSA delineations is a clear indication that LTCH providers did not fully grasp the significant impact of this proposed change when the size of the provider pool in the CBSA changes significantly. See FY 2015 IPPS/LTCH PPS Proposed Rule, 79 Fed. Reg. 27,978, 28,054 (May 15, 2015); see also FY 2015 Final Rule, 79 Fed. Reg. at 50,181-82 (R.R. at 8,084- 85). The following year, in its FY 2016 rulemaking, CMS again declined to raise the issue of year-to-year variability for public comment—this time with an increased risk for providers. In FY 2015, the risk that the new CBSAs would adversely affect providers was mitigated because CMS adopted a 1-year transition policy to minimize the impact on hospitals expected to have a decrease in its area wage index value solely due to the adoption of the new OMB delineations. Id. at 50,183-85 (R.R. at 8,086-88). In FY 2016, by contrast, providers were not afforded this protection, and were thus subject to a new risk of an unmitigated decrease in their Medicare reimbursement due to the new CBSA delineations. Despite this heightened risk and the fact that CMS was clearly aware by the time the FY 2015 Final Rule was released that providers in CBSAs with few other hospitals might face significant year-to-year instability as a result of the new CBSAs, CMS again failed to explain this issue and raise it for public comments in the FY 2016 Proposed Rule. As a result, CMS received no comments on the FY 2016 Proposed Rule on this particular issue. R.R. at 1272-5010. Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 29 of 52 23 CMS should have anticipated the need to explain volatility in the wage index for CBSAs with few hospitals and disclose sufficient information in the proposed rule for FY 2016 for the Plaintiff and other LTCHs to submit meaningful comments to the agency. However, CMS did not explain the significant impact that the revised CBSAs would have on the LTCH PPS wage index year-to-year. By failing to disclose this information or explain why applying the general wage index policy on the new CBSA delineations was nonetheless appropriate for LTCHs in this situation, CMS failed to “‘articulate with reasonable clarity its reasons for decision, and identify the significance of the crucial facts.’” Am. Med. Ass’n v. Reno, 57 F.3d 1129, 1133-34 (D.C. Cir. 1995) (quoting Greater Boston Television Corp., 444 F.2d at 851). In so doing, CMS failed to “provide sufficient factual detail and rationale for the rule to permit interested parties to comment meaningfully.” Fla. Power & Light Co., 846 F.2d at 771. This was not “fair notice” such that “interested parties should have anticipated the agency’s final course in light of the initial notice.” Owner–Operator Indep. Drivers Ass'n, Inc. v. Fed. Motor Carrier Safety Admin., 494 F.3d 188, 209 (D.C. Cir. 2007). Furthermore, CMS cannot show that providing such notice and opportunity for meaningful comment for the wage index was impracticable, unnecessary, or contrary to the public interest, which are the sole grounds under the APA for avoiding the notice and comment requirements before promulgating a final rule. 5 U.S.C. § 533(b)(3)(B); see also Util. Solid Waste Activities Grp. v. EPA, 236 F.3d 749, 754 (D.C. Cir. 2001). CMS was aware of the significant year-to-year variability that was likely to impact providers in CBSAs with three or less hospitals, FY 2015 Final Rule, 79 Fed. Reg. at 50,394-95 (R.R. at 8,297), and could easily have made that information available for public comment in the FY 2016 Proposed Rule. Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 30 of 52 24 Instead, CMS offhandedly decided that it was appropriate to treat hospitals in CBSAs with three or less hospitals the same as it treated other hospitals, without ever disclosing the facts or analysis supporting that determination. The controlling law on this issue is well established and clear. In order for parties to offer meaningful support or criticism during the APA’s notice- and-comment rulemaking process, the agency must make the studies and data it considered for the proposed rule available for public comment, and take commenters’ support or criticism into consideration when developing the final rule. Indeed, “it is especially important for the agency to identify and make available technical studies and data that it has employed in reaching the decisions to propose particular rules[,]” Conn. Light & Power Co. v. NRC, 673 F.2d 525, 530-31 (D.C. Cir. 1982), because “[t]o suppress meaningful comment by failure to disclose the basic data relied upon is akin to rejecting comment altogether.” Nova Scotia Food Prods. Corp., 568 F.2d at 252. Enforcing the APA’s notice and comment requirements ensures that “‘a genuine interchange’ occurs [between the agency and affected parties] rather than ‘allow[ing] an agency to play hunt the peanut with technical information, hiding or disguising the information that it employs.’” Am. Radio Relay League, 524 F.3d at 236-37 (quoting Conn. Light & Power Co., 673 F.2d at 530-21). If the federal agency relies on an outside study in promulgating a rule, the agency itself must first examine the methodology used to conduct the study. See City of New Orleans v. SEC, 969 F.2d 1163, 1167 (D.C. Cir. 1992). Furthermore, the technical complexity of the analysis does not relieve the agency of the burden to consider all relevant factors and there “must be a rational connection between the factual inputs, modeling assumptions, modeling results and conclusions drawn from these results.” Sierra Club v. Costle, 657 F.2d 298, 333 (D.C. Cir. 1981). Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 31 of 52 25 In Portland Cement Ass’n v. Ruckelshaus, 486 F.2d 375 (D.C. Cir. 1973), the United States Court of Appeals for the District of Columbia invalidated a final EPA regulation because the agency’s failure to utilize sufficient research data in the proposed rule hindered the opportunity for meaningful public comment. The court held that “[i]t is not consonant with the purpose of a rule-making proceeding to promulgate rules on the basis of inadequate data . . . .” Id. at 394. Instead, the issuing agency “must disclose in detail the thinking that has animated the form of a proposed rule” and provide a reasoned analysis of the data. Home Box Office, 567 F.2d at 35 (citing Portland Cement, 486 F.2d at 392-94). In Conservation Law Found. v. Fed. Highway Admin., 630 F. Supp. 2d 183, 216 (D.N.H. 2007), the court held that an agency’s failure to account for the traffic generating effects described in a population growth forecast was not a harmless error and the agency was not excused from a challenge under the APA. The report that contained the forecast was released pursuant to a Freedom of Information Act (“FOIA”) request, but not until after the close of a public comment period. Id. at 215. The court noted “that by failing to release the [report] for public inspection until after the Defendants had made their decision to proceed with the Four Lane Alternative, the public was not able to provide the input on traffic issues . . . .” Id. at 215 n.38. In order to provide meaningful comments on the proposed wage index for the FY 2016 LTCH PPS, the Plaintiff needed sufficient notice of the data, analyses, and modeling that CMS performed—or should have performed—to develop the wage index and evaluate the need for policies to address the significant variability in revised CBSAs with only a small number of hospitals. CMS did not make these findings available for public comment in either the FY 2015 or FY 2016 rulemakings. CMS also did not explain why it was appropriate to treat these Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 32 of 52 26 hospitals the same as all other hospitals in revised CBSAs, despite the increased risk that these providers would experience “a significant decline” in their wage index value. Further, CMS did not disclose any of the data, analyses, or modeling it relied on to reach this conclusion. In the addendum to its FY 2015 Final Rule, CMS simply asserted that “[w]e believe that these wage index changes are appropriate because these values are based on the most recent data available that reflect the relative hospital wage level in a geographic area (CBSA) in comparison to the national average hospital wage level.” FY 2015 Final Rule, 79 Fed. Reg. at 50,394-95 (R.R. at 8,297-98). However, this is the exact same rationale that CMS provided for adopting the new CBSAs in the first place, see FY 2016 Final Rule, 80 Fed. Reg. at 49,797 (R.R. at 488), and does nothing to explain why the wage index in CBSAs with three hospitals or less continue to serve as a “useful proxy” for the labor market areas they reflect, see FY 2015 Final Rule, 79 Fed. Reg. at 50,181 (R.R. at 8,084), despite the unique obstacles that these areas pose for predictable Medicare reimbursement, id. at 50,394-95 (R.R. at. 8,298-99). More importantly, because this response was simply slipped in to the addendum at the back of a FY 2015 Final Rule, affected parties had no opportunity to comment on CMS’s response. Even if the brief discussion in the addendum at the back of the FY 2015 Final Rule could be deemed notice for the FY 2016 LTCH PPS wage index, it is unreasonable to expect affected hospitals to play “hunt the peanut” to discover any possible negative consequences of CMS’s decision to adopt the new CBSA delineations for CBSAs with few other hospitals. Conn. Light & Power Co., 673 F.2d at 530-31. CMS did not adequately explain the economic impact of its adoption of the new CBSA classifications after the first year of implementation. In particular, CMS neglected to disclose the extraordinary volatility these classifications would inject into geographic markets with a drastic reduction in the size of the provider pool, even where the wage Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 33 of 52 27 index may have increased in the first year of implementation. The near absence of comments submitted to CMS in response to the new CBSA delineations is a clear indication that LTCH providers did not fully grasp the significant impact of this proposed change when the size of the provider pool in the CBSA changes significantly. See FY 2015 IPPS/LTCH PPS Proposed Rule, 79 Fed. Reg. 27,978, 28,054 (May 15, 2015); see also FY 2015 Final Rule, 79 Fed. Reg. at 50,181-82 (R.R. at 8,084). The lack of comments to the FY 2015 Proposed Rule made it even more important for CMS to disclose in the preamble to the FY 2016 Proposed Rule the volatility that would result from continuing to use these CBSA classifications for FY 2016—even in CBSAs where the wage index may have increased in the first year of implementation—and any facts and analyses underlying its conclusion that these CBSAs nonetheless “reflect the local economies and area wage levels of the hospitals that are currently located in these geographic areas.” FY 2016 Final Rule, 80 Fed. Reg. at 49,797 (R.R. at 488). Indeed, there were no comments submitted to CMS on the FY 2016 Proposed Rule on this particular issue. R.R. at 1272-5010. Deficient notice is a “fundamental flaw” that almost always requires that the rule be vacated. Allina Health Servs., 746 F.3d at 1110 (citing Heartland Reg’l Med. Ctr. v. Sebelius, 566 F.3d 193, 199 (D.C. Cir. 2009)). Because CMS did not provide adequate notice in the FY 2016 LTCH PPS Proposed Rule, the Plaintiff did not have an opportunity to submit meaningful comments to CMS. Had the Plaintiff received such notice, it would have commented on the significant harm that year-to-year wage index variability can have on a LTCH’s ability to provide continued access to long-term care hospital services for Medicare beneficiaries. The Plaintiff also would have recommended in comments that CMS develop policies to reduce this wage index variability. If the Plaintiff had access to the data and analyses that CMS relied on for Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 34 of 52 28 its decision not to adopt a separate policy for hospitals moved to CBSAs with few providers, the Plaintiff would have evaluated this information and proposed alternative policies to mitigate the significant adverse impact the FY 2016 Final Rule had on providers in these CBSAs. Because the Plaintiff was deprived of this opportunity to provide meaningful comments, the Plaintiff’s only recourse is to use this appeal to have the FY 2016 LTCH PPS wage index invalidated and either replaced with the FY 2015 LTCH PPS wage index or remanded to the Secretary to make appropriate adjustments to its wage index calculation policies for FY 2016 in order to avoid or reduce the negative impact of the significant reduction to the wage index here. The Defendant’s improper adoption of the FY 2016 LTCH PPS wage index harmed the Plaintiff by subjecting the Plaintiff to extreme wage index fluctuations that primarily hinge on the wages paid by a single large hospital in the CBSA. The FY 2016 LTCH PPS wage index should be set aside as invalid as promulgated because it is a substantive rule for which the Secretary failed to comply with notice and comment rulemaking under the APA. B. CMS Did Not Provide Sufficient Notice to Allow for Meaningful Comment on the FY 2016 LTCH PPS Wage Index in Violation of Medicare Act § 1871 The Medicare Act requires that the Secretary establish or change substantive rules affecting payment for services through properly promulgated regulations. SSA § 1871(a)(2), 42 U.S.C. § 1395hh(a)(2). The public must be afforded adequate notice of not less than 60 days for a proposed rule, and an opportunity to comment on that proposed rule. SSA § 1871(b)(1), 42 U.S.C. § 1395hh(b)(1). A final Medicare rule must be a “logical outgrowth” of a proposed Medicare rule. SSA 1871(a)(4), 42 U.S.C. § 1395hh(a)(4). CMS violated section 1395hh(a)(2) and (b)(1) of the Medicare Act by failing to give Plaintiff and other affected parties an opportunity to evaluate the agency’s proposed FY 2016 LTCH PPS wage index and related policies, offer constructive criticism and suggest ways to Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 35 of 52 29 improve the wage index with additional policies to address significant year-to-year variability in the wage index for CBSAs with few hospitals. The absence of public comments directed to this issue confirms that CMS did not provide sufficient notice. Plaintiff was directly harmed as a result. The final FY 2016 LTCH PPS wage index revealed a significant decrease in Plaintiff’s wage index amount. Plaintiff would have addressed this issue in comments to the proposed wage index if CMS had properly notified the public of the ongoing year-to-year variability in the wage index under the new CBSAs in areas with few hospitals. Plaintiff could not anticipate this change, nor could it “divine [CMS’s] unspoken thoughts” on this issue. Arizona Pub. Serv. Co. v. EPA, 211 F.3d at 1299. This is confirmed by the complete absence of any comments to the FY 2016 Proposed Rule on this particular issue. R.R. at 1272-5010. When done properly, CMS has not only considered public comments it received on similar issues that call for special wage index policies, the agency also has laid out the proposals of other commenters to give all affected parties an opportunity to comment and offer their own suggestions. For example, in the proposed rule to update Medicare payments to inpatient hospitals for FY 2005, CMS addressed concerns raised by hospitals that dominate their metropolitan statistical areas (“MSAs”) and hospitals in single-hospital MSAs. FY 2005 IPPS/LTCH PPS Proposed Rule, 69 Fed. Reg. 28,196, 28,290-91 (May 18, 2004) (“FY 2005 Proposed Rule”). Individual hospitals of both types expressed concerns to CMS about their treatment under the general wage index policies and reclassification rules. Id. at 28,290. They argued that their “special circumstances” called for special policies. MSA-dominant hospitals found it difficult to qualify for reclassification to a different MSA because they had an outside impact on their area’s wage index. Id. A sole hospital in a MSA received a wage index based solely on its own wage data, but could not be reclassified to a nearby MSA where they compete Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 36 of 52 30 for the same labor pool unless the hospital is a rural referral center. Id. CMS explained these issues in the proposed rule and “invit[ed] comment on the concerns raised by hospitals in these two situations and on possible methods of addressing these concerns.” Id. CMS believed that “[a] number of measures might be considered to address the concerns of these hospitals.” Id. CMS discussed changes to its policies such as revising the reclassification rules in various ways, or defining such hospitals differently in the regulations to address these concerns. Id. at 28,290-91. CMS considered limiting these changes to only these types of hospitals, or applying them more generally to all hospitals. Id. at 28,291. As CMS encouraged other commenters to offer their input and suggestions on revised wage index policies, the agency said that they would conduct further analysis at the same time. In the final rule, CMS stated that they were “persuaded that it is equitable, as a matter of general policy for all hospitals, to revise the wage comparison formula for all hospitals in the manner recommended by some of the commenters.” 69 Fed. Reg. 48,916, 49,109 (Aug. 11, 2004). This change helped to provide more accurate wage index amounts to MSA-dominant hospitals. Id. Although CMS did not adopt the suggestions of sole hospitals in a MSA—such as, eliminate or reduce the number of single hospital MSAs, merge all single hospitals MSAs into the closest MSA, allow hospitals in single hospital MSAs to reclassify to the nearest MSA, or provide a four-year transition period for such hospitals—CMS did address their concerns with a new out-commuting adjustment. Id. The out-commuting adjustment increases a hospital’s wage index if the hospital is located in counties that have a relatively high percentage of hospital employees who reside in the county but work in a different county with a higher wage index. Id. at 49,061. Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 37 of 52 31 This is the type of proper notice, reasoned analysis, thoughtful consideration of comments and suggestions from affected hospitals, and responsive changes to agency rules that was lacking in the wage index portion of the FY 2016 Proposed Rule for LTCHs in CBSAs with few other hospitals. Had CMS properly notified Plaintiff and other LTCHs in the FY 2016 Proposed Rule of the potential for CBSAs with only a few hospitals to have extreme year-to-year fluctuations in their wage index after the 1-year transition period, and asked for comments and suggestions on how to address this problem, Plaintiff would have been able to submit meaningful comments to CMS on this issue and offered suggested policies to reduce volatility. Even if the brief discussion in the addendum at the back of the FY 2015 Final Rule, 79 Fed. Reg. at 50,395 (R.R. at 8,298), could be deemed notice of the issue for FY 2016, the FY 2016 Final Rule is not a logical outgrowth under Section 1871(a)(4) of the Medicare Act. 42 U.S.C. § 1395hh(a)(4). Under this section of the Medicare Act, the final wage index “shall be treated as a proposed regulation and shall not take effect until there is the further opportunity for public comment and a publication of the provision again as a final regulation.” SSA § 1871(a)(4) 42 U.S.C. § 1395hh(a)(4). The final wage index is not a logical outgrowth because the Plaintiff could not have anticipated that the change in their wage index amount from FY 2015 to FY 2016 was possible, and thus could not reasonably be expected to file comments on the subject during the notice-and-comment period. Allina Health Servs. v. Sebelius, 904 F. Supp. 2d 75, 85-86 (D.D.C. 2012), aff'd in part, rev'd in part, 746 F.3d 1102 (D.C. Cir. 2014); Int’l Union, UMWA, 407 F.3d at 1259; Ne. Md. Waste Disposal Auth. v. EPA, 358 F.3d 936, 952 (D.C. Cir. 2004). Plaintiff could not ‘divine [the Agency’s] unspoken thoughts’ on variability in their wage index amount coming off of the 1-year transition period. Allina Health Servs., 904 F. Supp. 2d at 86; Arizona Pub. Serv. Co. v. EPA, 211 F.3d at 1299; Int'l Union, UMWA, 407 F.3d at 1260. Section Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 38 of 52 32 1871(a)(4) of the Medicare Act does not excuse this type of rulemaking violation as harmless error. Allina Health Servs. v. Sebelius, 746 F.3d at 1109. Plaintiff was deprived of an opportunity to offer meaningful comments as a result of the agency’s insufficient notice, in violation of Section 1871(a)(2) and (b)(1) of the Medicare Act, and improper final rule, in violation of Section 1871(a)(4) of the Medicare Act, resulting in the sharp decrease in Plaintiff’s FY 2016 wage index under the general wage index policies. The FY 2016 LTCH PPS wage index should be set aside as invalid as promulgated because it is a substantive rule for which the Secretary failed to comply with notice and comment rulemaking under the Medicare Act. C. The FY 2016 LTCH PPS Wage Index Is Arbitrary and Capricious Under APA § 706 Because CMS Did Not Take a Hard Look at, or Adopt Policies to Reduce, Year-to-Year Variability of the Wage Index Amount for LTCHs in Revised CBSAs with Few Hospitals The FY 2016 LTCH PPS wage index also suffers from substantive violations of the APA because CMS did not take a “hard look” at the year-to-year variability of the wage index amount for LTCHs in revised CBSAs with few hospitals, or demonstrate that its decision not to adopt policies to reduce that variability was a product of reasoned decision-making. See Greater Boston Television Corp., 444 F.2d at 851 (explaining that an agency acts arbitrarily and capriciously under the APA if “the agency has not really taken a ‘hard look’ at the salient problems, and has not genuinely engaged in reasoned decision-making.”). An agency’s action is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law,” 5 U.S.C. § 706(2)(A), if “the agency . . . entirely failed to consider an important aspect of the problem.” State Farm Mut. Auto. Ins. Co., 463 U.S. at 43; see also Johnson, 603 F. Supp. 2d at 39. In addition, if an agency fails to provide a “reasoned analysis” for the rule it enacts, id. at 42, the agency’s action is “arbitrary, capricious, an abuse of Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 39 of 52 33 discretion, or otherwise not in accordance with the law,” 5 U.S.C. § 706(2)(A). To comply with the APA, “the agency must examine the relevant data and articulate a satisfactory explanation for its action including a ‘rational connection between the facts found and the choice made.’” State Farm Mut. Auto. Ins., 463 U.S. at 43 (quoting Burlington Truck Lines v. United States, 371 U.S. 156, 168 (1962)). If an agency fails to provide a “reasoned analysis” for the rule it enacts, id. at 42, the agency’s action is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law.” 5 U.S.C. § 706(2)(A). See, e.g, Summer Hill Nursing Home LLC v. Johnson, 603 F. Supp. 2d 35, 39 (D.D.C. 2009) (concluding that “the Secretary entirely failed to consider an important aspect of the problem[]” and “the Secretary’s decision provide[d] no basis upon which [the Court] could conclude that it was the product of reasoned decisionmaking” because CMS did not explain why Summer Hill’s subsequent receipt of remittance advices was insufficient to establish that the bad debts were actually uncollectible when claimed (internal quotation marks omitted)). An agency violates the APA’s reasoned analysis requirement if it fails to consider an important aspect of the problem during a rulemaking. State Farm Mut. Auto. Ins., 463 U.S. at 43 (explaining that an agency action is arbitrary and capricious if “the agency . . . entirely fail[s] to consider an important aspect of the problem”); Wood v. Betlach, 922 F. Supp. 2d 836, 842 (D. Ariz. 2013) (finding that HHS failed to address an important aspect of the problem because the record contains no evidence that HHS considered or responded to plaintiffs’ expert opinion that none of the demonstration project’s hypotheses test anything new); Cent. Or. Hosp. Dist. v. Sullivan, 757 F. Supp. 1134, 1136-37 (D. Or. 1991) (concluding that a portion of a regulation defining criteria for sole community hospital classification was invalid because HHS should have considered factors in addition to distance, topography, and weather in determining the Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 40 of 52 34 appropriateness of SCH status); St. James Hosp. v. Heckler, 760 F.2d 1460, 1469 (7th Cir. 1985), accord, Walter O. Boswell Mem’l Hosp. v Heckler, 628 F. Supp. 1121, 1127 (D.D.C. 1985) (holding that malpractice rule was arbitrary and capricious because HHS entirely failed to consider an important aspect of the problem by making no attempt to examine the relationship between actual malpractice loss experience and premium costs, and its rule was not adequately supported by the study it relied on); see also Shays v. FEC, 337 F. Supp. 2d 28, 72 (D.D.C. 2004) (concluding that the FEC’s regulation implementing the Bipartisan Campaign Reform Act (“BCRA”) was arbitrary and capricious because the FEC “did not adequately explain its decision to exclude ‘apparent authority’ from the scope of its definition of ‘agent’” and provided “no indication that [it] considered how [its] decision might facilitate circumvention or perpetuate the appearance of corruption, two policies Congress definitely sought to advance in passing BCRA” demonstrating that the FEC “entirely failed to consider an important aspect of the problem” (internal quotation marks omitted)). In this case, there is no indication that CMS ever took a “hard look” at the significant year-to-year fluctuation likely to confront hospitals in CBSAs with three or less hospitals. CMS acknowledges that because CBSAs are not designed to determine the appropriate labor markets for Medicare reimbursements it is important to take care when adapting them to that purpose. See About Metropolitan and Micropolitan Statistical Areas, OMB, http://www.census.gov/population/metro/about (last visited Apr. 4, 2017) (“While OMB recognizes that a number of agencies, both inside and outside the Federal government, make use of the delineations of metropolitan and micropolitan statistical areas for nonstatistical programmatic applications, OMB delineates the areas for statistical purposes only. In delineating metropolitan and micropolitan statistical areas, OMB does not attempt to anticipate or take into Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 41 of 52 35 account any nonstatistical uses that may be made of the delineations, nor will OMB modify the delineations to meet the requirements of any nonstatistical program.”); see also FY 2015 Final Rule, 79 Fed. Reg. at 49,951 (R.R. at 7,854) (“While we recognize that MSAs are not designed specifically to define labor market areas, we believe they do represent a useful proxy for this purpose.’’); see also id. (explaining that “CMS did not implement the new OMB labor market area delineations for FY 2014 because [it] needed sufficient time to assess the new changes”). In the addendum to its FY 2015 Final Rule, CMS discovered a reason that the new CBSAs might be ill-suited for determining Medicare reimbursement rates: the new CBSAs would have a particularly harsh effect on hospitals in CBSAs with three hospitals or less because of the statistical peculiarities of those areas. CMS explained that: Labor market areas (CBSAs) with fewer providers are generally subject to less stability in year-to-year wage index values because there is less of an averaging effect, wherein even relatively minor changes in one provider’s wage data can produce a relatively “significant” effect on the wage index value for that area. This is because such a change in one provider’s wage data has a relatively greater effect on the CBSA’s average hourly wage (based solely on the limited number of hospitals in that area) when compared to the effect that such a change has on the national average hourly wage (which is based on wage data from all hospitals). FY 2015 Final Rule, 79 Fed. Reg. at 50,395 (R.R. at 8,298). However, CMS did not meaningfully respond to this revelation. Instead, CMS simply re- asserted that “[w]e believe that these wage index changes are appropriate because these values are based on the most recent data available that reflect the relative hospital wage level in a geographic area (CBSA) in comparison to the national average hospital wage level.” Id. This general, off-handed statement in no way addresses the particular problem confronting hospitals in CBSAs with three or less hospitals, but is instead the exact same rationale that CMS provided for adopting the new CBSAs in the first place. FY 2016 Final Rule, 80 Fed. Reg. at 49,797 (R.R. at 488). It is impossible to discern the underlying reasoning or rationale for extending the general Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 42 of 52 36 wage index policy to LTCHs in CBSAs with three hospitals or less from this statement. CMS’s response fails to explain why these CBSAs continue to serve as a “useful proxy” for the labor market areas they reflect, FY 2015 Final Rule, 79 Fed. Reg. at 50,181 (R.R. at 8,084), despite the unique obstacles that these areas pose for fair and accurate wage index calculation, id. at 50,394- 95 (R.R. at 8,297-98). Moreover, CMS cannot claim that it addressed the problem through transition policies because the 1-year transition policy for LTCHs that experience a decrease in wage index due to the new CBSAs did not address the situation here, where new CBSA-based labor markets experience significant ongoing volatility in their wage index from year to year as a result of a very small provider pool for that labor market. Id. at 50,183-84, 50,395-96 (R.R. at 8,086-87, 8,298-99) (noting that the 1-year transition policy “mitigat[es] some short-term instability in LTCH PPS payments . . . .” (emphasis added)). The destabilization in wage indexes caused by the new geographic delineations is not a short-term phenomenon for hospitals in CBSAs containing very small provider pools because average labor costs will continue to be derived from only a few hospitals. Indeed, the persistent year-to-year unpredictability caused by the new CBSA designations for these markets runs counter to the predictability that is a cornerstone of any prospective payment system, including the LTCH PPS. Id. at 50,010 (R.R. at 7,913) (noting that the fundamental goals of the LTCH PPS are “administrative efficiency, finality, and predictability in payments” (emphasis added)). Because the potential for significant year-to-year variability in wage-index values is an ongoing issue, it presented an important issue that CMS should have raised in its FY 2016 Proposed Rule. Indeed, there was special reason to discuss this issue in the FY 2016 rulemaking because the 1-year transition period had lapsed, and providers were exposed to an increased risk Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 43 of 52 37 that their Medicare reimbursement would be reduced as a result of the new CBSA delineations. The brief statement in the addendum at the back of the FY 2015 Final Rule indicates that CMS knew that it was disproportionally likely that hospitals in CBSAs with three or less hospitals might experience “a significant decline” in wage index value. Id. at 50,394-95 (R.R. at 8,297- 98). However, nowhere in the Federal Register did CMS explain this risk, or detail its decision to continue applying the general wage-index policy to these hospitals. CMS’s conclusory assertion in the addendum at the back of the FY 2015 Final Rule and entire omission of any discussion in the FY 2016 Final Rule indicate that CMS never really took a “hard look” at the year-to-year variability of the wage index amount for LTCHs in revised CBSAs with few hospitals. There is no indication that CMS ever “genuinely engaged in reasoned decision-making” in deciding to extend the general wage-index policy to these hospitals. Greater Boston Television Corp., 444 F.2d at 851. Instead, CMS simply ignored the problem in its FY 2016 rule-making in an apparent hope that it would just go away. By doing so, CMS “entirely failed to consider an important aspect of the problem,” in violation of the APA. State Farm Mut. Auto. Ins., 463 U.S. at 43. Accordingly, CMS’s failure to address the destabilizing longer-term effects of its policy, and the resulting failure to adequately inform affected parties of these effects so as to permit informed comments, constituted a violation of Section 706(2)(A) of the APA as arbitrary and capricious, an abuse of discretion, or otherwise not in accordance with the law. 5 U.S.C. § 706(2)(A). Therefore, the FY 2016 wage index for this hospital must be set aside and either replaced with the FY 2015 LTCH PPS wage index or remanded to the Secretary to make appropriate adjustments to its wage index calculation policies for FY 2016 in order to avoid or reduce the negative impact of the significant reduction to the wage index here. Id. Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 44 of 52 38 D. The FY 2016 LTCH PPS Wage Index Is Arbitrary and Capricious Under APA § 706 Because CMS Failed to Provide Sufficient Reasons for Treating Wage Index Fluctuations Caused by the FY 2015 LTCH PPS Final Rule Differently than Similar Situations The FY 2016 LTCH PPS wage index also suffers from substantive violations of the APA because CMS did not provide sufficient reasons for treating wage index fluctuations caused by the FY 2015 LTCH PPS Final Rule differently from similar situations. In order to comply with the APA’s requirement that an agency regulation cannot be “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law,” 5 U.S.C. § 706(2)(A), the agency must exhibit a “reasoned analysis” in its decision-making and “articulate a satisfactory explanation for its action.” State Farm Mut. Auto. Ins., 463 U.S. at 30. An agency fails this requirement when it treats similar situations differently without providing a reasoned explanation for why it decided to do so. Verdant Health Comm’n v. Burwell, 127 F. Supp. 3d 1116, 1124 (W.D. Wash. 2015) (quoting Muwekma Ohlone Tribe v. Salazar, 708 F.3d 209, 216 (D.C. Cir. 2013)) (“Agency action is arbitrary and capricious if ‘the agency offers insufficient reasons for treating similar situations differently.’”). In this case, CMS acted arbitrarily, in violation of the APA, by failing to provide sufficient reasons for treating similar cases differently. Similar to Allina, where the court found that it was arbitrary and capricious for the Secretary to change the methodology for calculating Medicaid payments without providing a reasoned explanation for the policy change, see Allina Health Servs., 904 F. Supp. 2d at 86-87, the Plaintiff asserts that CMS violated the APA by changing the Plaintiff’s wage index without providing a reasoned explanation for subjecting the Plaintiff to the wide fluctuations inherent in the new wage-index methodology. In Cty. of L.A. v. Shalala, 192 F.3d 1005, 1009-10 (D.C. Cir. 1999), the Secretary used data culled from the 1981 Medicare Provider Analysis and Review (MEDPAR) file—based on Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 45 of 52 39 the old reasonable-cost system—to project the DRG payments for 1984. Hospitals whose reimbursements were affected argued that “the Secretary had acted arbitrarily and capriciously by relying on the 1981 MEDPAR file when she forecast outlier thresholds for fiscal years 1985- 1986.” Id. at 1010. The United States Court of Appeals for the District of Columbia invoked “‘[a] long line of precedent has established that an agency action is arbitrary when the agency offer[s] insufficient reasons for treating similar situations differently[,]” id. at 1022 (quoting Transactive Corp. v. United States, 91 F.3d 323, 237 (D.C. Cir. 1996)), and invalidated the agency action because the Secretary had endorsed the 1984 data in making other determinations and “inadequately explained why the 1984 data were suitable for one significant calculation but unreliable for another.” Id.; see also Kaiser Found. Hosp. v. Sebelius, 828 F. Supp. 2d 193, 202- 03 (D.D.C. 2011) (finding the HHS Secretary’s policy that full-time equivalent (FTE) resident and intern caps were ineligible to be re-opened after three years arbitrary and capricious because it conflicted with the Secretary’s policy in analogous situations). The court held that it violated the APA for the Secretary to adopt different policies for similar situations without explaining the reasons for doing so. Similarly, in this case CMS acted arbitrarily and capriciously in violation of the APA because it created a special wage index policies for some hospitals expected to encounter wage index variability as a result of the new CBSAs, but declined to adopt a special policy for other hospitals facing the exact same concern as a result of being moved to CBSAs with few other providers. For example, in the FY 2015 Final Rule, CMS conducted an extensive impact analysis regarding hospitals located in Micropolitan Statistical Areas, and noted that it would not make sense to extend the general wage index policy to these hospitals because: (i) they contain fewer hospitals than Metropolitan Statistical Areas; (ii) the wage index would include “drastically more Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 46 of 52 40 single-provider labor market areas”; (iii) the “larger number of labor market areas with fewer hospitals could create instability in year-to-year wage index values for a large number of hospitals”; (iv) it “could reduce the averaging effect of the wage index,” making it less efficient; and (v) it could “create an inequitable system when so many hospitals would have wage indexes based solely on their own wage data, while other hospitals’ wage indexes would be based on an average hourly wage across many hospitals.” FY 2015 Final Rule, 79 Fed. Reg. at 50,182 (R.R. at 8,085). Based upon these factors and analysis, CMS created a special policy treating hospitals in Micropolitan Statistical Areas as rural hospitals for purposes of the LTCH PPS wage index. CMS explained that “[w]e do not believe it would be appropriate to calculate a separate wage index for areas that typically may include only a few hospitals . . . .” Id. at 49,952 (R.R. at 7,855). Courts have recognized that one of the central policies underlying CMS’s delineation of geographic areas for the purposes of the wage index is that “each geographic area must include enough hospitals that their costs can be meaningfully averaged and individual hospitals do not get reimbursed for their own actual costs.” Bellevue Hosp. Ctr. v. Leavitt, 443 F.3d 163, 175 (2d Cir. 2006). In the FY 2015 Final Rule, CMS recognized that applying the general LTCH PPS policy to hospitals in Micropolitan Statistical Areas would conflict with this underlying policy of ensuring that each geographic area includes enough hospitals that their costs can meaningfully be averaged, and accordingly developed a special policy to rectify this situation. However, these exact same considerations apply to the Plaintiff and other hospitals in regions with only a small number of hospitals, and yet CMS did not adopt a special policy for these providers or explain its decision not to do so. The Plaintiff is located in a “labor market area[] with fewer hospitals [that has] create[d] instability in year-to-year wage index values.” FY Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 47 of 52 41 2015 Final Rule, 79 Fed. Reg. at 50,182 (R.R. at 8,085). This “reduce[s] the averaging effect of the wage index,” making it less efficient. Id. In addition, “it [] create[s] an inequitable system when [the Plaintiff and similar] hospitals have wage indexes based solely on their own wage data, while other hospitals’ wage indexes would be based on an average hourly wage across many hospitals.” Id. CMS should have created a special policy to reduce year-to-year variability in the wage index for these hospitals, just as it did for hospitals in Micropolitan Statistical Areas, or it should have explained why it thought it was better to treat these similar situations differently. Instead, the only reference CMS made to the Plaintiff’s situation in either the FY 2015 or FY 2016 rulemaking record is an off-hand response to an unrelated comment in the addendum at the back of the FY 2015 Final Rule. Id. at 50,394-95 (R.R. at 8,297-98). There are many problems with this response, which only highlight the arbitrary and capricious nature of CMS’s refusal to adopt a special wage index policy for hospitals, like the Plaintiff, in CBSAs with few other hospitals. First, CMS did not conduct an extensive impact analysis before proposing the revised LTCH PPS wage index for FY 2015, as the agency did for hospitals in Micropolitan Statistical Areas. Instead, CMS merely identified the problem which the Plaintiff now argues is responsible for the dramatic decrease in its wage index in FY 2016. Moreover, CMS only discovered this was a problem after the proposed rule was published for FY 2015 and the comment period had closed. Although CMS “found that many of the[] CBSAs [expected to experience a significant decline in wage index value] were comprised of three or less hospitals,” and it correctly determined that “[l]abor market areas (CBSAs) with fewer providers are generally subject to less stability in year-to-year wage index values because there is less of an averaging effect, wherein even relatively minor changes in one provider’s wage data can produce a relatively ‘significant’ effect on the wage index value for that area,” the agency Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 48 of 52 42 did nothing to address the problem. Id. CMS quickly dismissed the problem because some hospitals in the same situation are “projected to experience a significant increase” in their wage index values and, as a general claim, “the wage index changes are appropriate because these values are based on the most recent data available.” Id. The stark contrast between the thoughtful way in which CMS analyzed and developed the wage index policy for hospitals in Micropolitan Statistical Areas and the off-hand response to hospitals, like the Plaintiff, in CBSAs with few hospitals illustrates that the latter is arbitrary and capricious in violation of the APA. CMS should have (i) conducted an impact analysis; (ii) provided sufficient notice of the issue in the FY 2015 proposed rule (or at the very latest, in the FY 2016 proposed rule); (iii) explained why the general wage index policy applied to the Plaintiff and like hospitals is not inconsistent with other wage index policies (including the special policy on hospitals in Micropolitan Statistical Areas); (iv) allowed hospitals to comment on the proposal and suggest alternatives; and (v) considered these comments and alternatives before finalizing the wage index for the FY 2015 and FY 2016 LTCH PPS. By failing to do so, CMS acted arbitrarily and capriciously under the APA. Verdant Health Comm’n, 127 F. Supp. 3d at 1124 (W.D. Wash. 2015) (quoting Muwekma Ohlone Tribe, 708 F.3d at 216) (“Agency action is arbitrary and capricious if the agency offers insufficient reasons for treating similar situations differently.”). The inconsistency between the agency’s decision to create a special wage index policy for hospitals in Micropolitan Statistical Areas, but not for the Plaintiff, where similar issues and policy concerns exist, require that the Plaintiff’s wage index for FY 2016 be changed. However, it would not be appropriate to apply the exact same wage index policy to the Plaintiff because the Plaintiff is located in a Metropolitan Statistical Area (CBSA 25220 – Hammond, LA), not a Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 49 of 52 43 Micropolitan Statistical Area. See OMB Bulletin No. 13–01 at 11, 33 (Feb. 28, 2013). Therefore, the revised FY 2016 wage index for the Plaintiff cannot be the rural wage index. This would only reduce the Plaintiff’s wage index even further, increasing year-over-year variability from FY 2015 to FY 2016. Rather, the FY 2016 wage index for this hospital must be set aside and either replaced with the FY 2015 LTCH PPS wage index or remanded to the Secretary to make appropriate adjustments to its wage index calculation policies for FY 2016 in order to avoid or reduce the negative impact of the significant reduction to the wage index here. For example, the Secretary could apply the FY 2016 LTCH PPS wage index for CBSA 35380 (New Orleans- Metairie, LA) to the Plaintiff because that is the wage index applied to the only other hospital in the same CBSA, North Oaks Medical Center. It would be fair and appropriate to apply the same wage index as the North Oaks Medical Center because it is located across the street from the Plaintiff, less than 0.4 miles away, and both hospitals hire from the same labor pool. As an LTCH, Plaintiff cannot be reclassified to a different CBSA like North Oaks Medical Center. 80 Fed. Reg. at 49,797 (R.R. at 488). For these reasons, the FY 2016 LTCH PPS wage index should be set aside as invalid as promulgated because the Secretary’s failure to provide sufficient reasons for treating similar situations differently was arbitrary, capricious and an abuse of discretion under the APA. VII. CONCLUSION The Court should grant Plantiff’s Motion for Summary Judgment, order that (i) the wage index for this hospital under the LTCH PPS for FY 2016 is invalid as a matter of law, and (ii) the Secretary must use the FY 2015 LTCH PPS wage index to reimburse Plaintiff’s FY 2016 Medicare claims until the Secretary effectuates a policy, after reasoned analysis and notice and comment, to avoid or significantly reduce the negative impact of the reduction to Plaintiff’s FY Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 50 of 52 44 2016 LTCH PPS wage index amount, and reduce year-to-year variability in Plaintiff’s wage index amount in the future. Dated: April 7, 2017 Respectfully submitted, /s/ Jason M. Healy Jason M. Healy (D.C. Bar No. 468569) THE LAW OFFICES OF JASON M. HEALY PLLC 1701 Pennsylvania Ave., N.W. Suite 300 Washington, DC 20006 (202) 706-7926 (888) 503-1585 (fax) jhealy@healylawdc.com Attorney for Plaintiff Post Acute Medical at Hammond, LLC d/b/a Post Acute Specialty Hospital of Hammond Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 51 of 52 CERTIFICATE OF SERVICE I hereby certify that on April 7, 2017, I filed the foregoing document with the Clerk of Court via the CM/ECF system, causing it to be served electronically on Defendant’s counsel of record. /s/ Jason M. Healy Jason M. Healy Case 1:16-cv-01257-JDB Document 16 Filed 04/07/17 Page 52 of 52 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA POST ACUTE MEDICAL AT HAMMOND, LLC d/b/a Post Acute Specialty Hospital of Hammond 42074 Veterans Avenue Hammond, LA 70403, Plaintiff, v. THOMAS E. PRICE, Secretary U.S. Department of Health and Human Services 200 Independence Avenue, S.W. Washington, DC 20201, Defendant. Civil Action No. 16-1257 (JDB) ORDER Upon consideration of Plaintiff’s Motion for Summary Judgment, Defendant’s Opposition and Cross-Motion for Summary Judgment, and the entire record herein, it is hereby ORDERED that Plaintiffs’ Motion for Summary Judgment is GRANTED; and it is further ORDERED that Defendant’s Cross-Motion for Summary Judgment is DENIED; and it is further ORDERED that the FY 2016 LTCH PPS wage index published in the Federal Register on August 17, 2015 at 80 Fed. Reg. 49,326, 49,797-800, Tables 12A and 12B, is invalid as promulgated because it is a substantive rule for which the Secretary failed to comply with notice and comment rulemaking requirements under the Administrative Procedure Act and the Medicare Act; and it is further ORDERED that the FY 2016 LTCH PPS wage index and its application to Plaintiff is set aside and stricken in its entirety as arbitrary, capricious, and an abuse of discretion; and it is further Case 1:16-cv-01257-JDB Document 16-1 Filed 04/07/17 Page 1 of 2 2 ORDERED that Defendant shall use the FY 2015 LTCH PPS wage index to reimburse all of Plaintiff’s FY 2016 Medicare claims until the Secretary effectuates a policy, after reasoned analysis and notice and comment, to avoid or significantly reduce the negative impact of the reduction to Plaintiff’s FY 2016 LTCH PPS wage index amount, and reduce year-to-year variability in Plaintiff’s wage index amount in the future; and it is further ORDERED that Plaintiff shall be awarded prejudgment interest to which it is entitled to as a matter of right under 42 U.S.C. § 1395oo(f)(2); and it is further ORDERED that the Court shall retain jurisdiction of this matter until such time as the Defendant or his agent have made the payments set forth above, and the Clerk shall not close the docket for this matter until further order from the Court. On this _______ day of ___________________, 2017, IT IS SO ORDERED. __________________________________________ Hon. John D. Bates, United States District Judge Case 1:16-cv-01257-JDB Document 16-1 Filed 04/07/17 Page 2 of 2